Firms’ expectations and uncertainty during COVID-19: Evidence from Italian firms

This paper investigates how the COVID-19 pandemic affected Italian firms’ expectations regarding future growth and prices, and the link between firm-level uncertainty and forecast errors. Using firm-level panel data from the Bank of Italy’s INVIND survey, we document that growth-expectation formation is stable across nearly three decades, including the COVID-19 pandemic, and that growth forecasts retain predictive content for realized outcomes in every year of the sample. Firms’ self-reported uncertainty about growth is informative about forecast accuracy in crisis years but not during 2020–2021, when uncertainty was driven by a common aggregate shock. At the aggregate level, cross-sectional disagreement among firms predicts the dispersion of subsequent realized outcomes, with predictability running only from expectations to outcomes. Workforce shortages are the dominant channel through which the pandemic disrupted firm expectations, more relevant than demand, supply, or financial channels. The price domain differs from real growth, with the response of expected prices to realized prices weakening during the late 1990s, the 2008–2009 financial crisis, and the 2022 inflation surge, while subjective price uncertainty remains a stable predictor of forecast errors.